Coporate Chapter 1

What is Finance?

Design for financial decision making, financial analysis, and communication of financial goals.

Corporate Finance

Revolves around decision making, uses a variety of methods, and is centered around corporations but not limited to them.

Investments

Investing for a return, balancing risk and reward, and building a financial portfolio.

Financial Institutions

Companies that deal with financial areas, such as banks, insurance companies, and investment firms.

International Finance

International aspects of various finance areas and can involve international companies or U.S. companies.

Fintech

Technological uses in finance, including apps and other platforms for financial services.

Corporate Finance Activities

Evaluation of investments and projects, financing and acquisition costs, and everyday activities such as receivables and collections.

Capital Budgeting

Process of planning and managing a firm’s long-term investments.

Capital Structure

Mix of debt and equity maintained by the firm.

Working Capital

A firm’s short-term assets and liabilities.

Sole Proprietorship

A business owned by a single individual.

Advantages of a Sole Proprietorship

Easy to start, least regulated form of organization, and owner keeps all profits.

Disadvantages of a Sole Proprietorship

Unlimited liability, limited life of the business, difficulty transferring ownership, and limited ability to raise capital.

Partnership

A company owned by two or more individuals.

Advantages of a Partnership

Easy and inexpensive to form, more capital available than a sole proprietorship, and income taxed as personal income.

Disadvantages of a Partnership

Unlimited liability for general partners, limited life of the business, difficulty transferring ownership, and limited ability to raise capital.

General Partnership

All partners have unlimited liability.

Limited Partnership

Limited partners have liability limited to their investment.

Corporation

A distinct legal entity composed of one or more individuals and can build a lot of capital.

Private Corporation

The business is separated legally; stocks are not for sale and only the owners have them.

Public Corporation

Offers equity and shares to investors.

Advantages of a Corporation

Limited liability, unlimited life, easier transfer of ownership, superior ability to raise capital, and can have many owners (shareholders).

Disadvantages of a Corporation

Double taxation and more complex and expensive to form.

Role of Corporate Managers

Add value to the shareholders because shareholders own the company and have the ultimate say.

Managerial Goals

Add value to the shareholders.

Agency Problems

Conflict of interest between management and shareholders.

Primary Market

The corporation is the seller of the stock directly to the public. The goal is to raise capital and it is regulated by the SEC.

Secondary Market

One owner/investor selling to another. The issuing corporation is not involved and transactions happen on exchanges.